Mastering Earned Value Calcuations for PMP Exam - Part-4 (TCPI)

Note:

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In Part-3 of “Mastering the Earned Value Calculations for PMP Exam”, we have studied about the Project Estimations mostly EAC which keeps changing as the scenario changes.

Now, in Part-4 of we will study one very important index of project performance which is To Complete Performance Index (TCPI) which also changes with the scenario. We will master all the scenarios related to that.


To-Complete Performance Index (TCPI)

It is again an estimate which is calculated basically to know what performance is need to achieve the project goal. To-Complete Performance Index (TCPI) is an estimate of the performance needed to achieve a goal. It is clear from the name itself, To Complete Performance Index.

For example, if you are driving a car from New Delhi to Dehradun and you have a goal to reach Dehradun by 11:00 AM. Dehradun is 300 kms from New Delhi. You start at 6 AM and driving at 55 kms/hr and its 10:00AM  now.

So what does it mean you have to cover 80 kms in an hours now. So your TCPI will

Formulae for TCPI

Again there are more than one formulae for TCPI and it changes with the scenario. One formula is based on the BAC; the other is based on EAC.

But what actually TCPI means. Ideally it is ration of Work Remaining to the Funds remaining.

So in simple words you can write:

TCPI = Work Remaining / Funds Remaining.

It means if TCPI >1, it is not good for project because it shows either the fund remaining are less than the value of the work remaining or Work remaining is greater than the funds remaining (either way is same)

Can you guess how you can calculate the work remaining and funds remaining?

Work remaining is the difference of total budget and what the work you have achieved, right?

So

Work Remaining = BAC – EV (makes sense?)

And what are the funds remaining?

This is a question to think. It can change based on the scenario.

Well,

1. If you fundamentals estimates are not flawed yet (original budget is still valid), then it will be the difference of Original Budget and Actual Costs.
   
   
   
   
   Funds Remaining = BAC – AC
   
   
    
   
2. If you need to calculate a new budget (EAC), then it will the difference of Estimate at Completion and Actual Costs.
   
   
   
   
   Funds Remaining = EAC – AC

                      So the formula of TCPI will be changed accordingly

            


Scenario 1 – Original Budget (BAC) is valid

We know that BAC is an estimate of the project cost that you created at the start of the project. If this estimate is still valid, use this formula:

To-Complete Performance Index = Work Remaining / Funds Remaining.

From the discussion above

TCPI (When BAC is valid) = BAC – EV / BAC – AC

Example: The project is due to be completed in two months. At the start of the project, it was estimated that the project would cost $100,000 to complete. Till date project has spent $60,000. As per the estimation project has completed the work of worth $70,000. There is nothing bad with the project and it is estimated the project will be completed on time and on budget. What is the To-Complete Performance Index?

Answer: Now if we read the question carefully, project will be completed on budget and there is no new estimate (EAC) needed. We can safely assume that BAC is still valid.

Now see the data presented in question:

BAC = $100000, AC = $60000, EV = $70000

Since the BAC is still valid

TCPI = BAC – EV / BAC – AC

TCPI = (100000-70000) / (100000-60000)

= 30000/40000 = 0.75

TCPI < 1, so it is good for project.

Scenario 2 – Original Budget (BAC) is flawed and you need a new estimation (EAC)

We know that BAC is an estimate of the project cost that you created at the start of the project. If this estimate is not valid now, you need a new estimate and that is your EAC. Then, use this formula:

To-Complete Performance Index = Work Remaining / Funds Remaining.

                 From the discussion above

TCPI (When BAC is not valid anymore) = BAC – EV / EAC – AC

Let’s modify the above example and calculate the TCPI.

Example: The project is due to be completed in two months. At the start of the project, it was estimated that the project would cost $100,000 to complete. Till date project has spent $80,000. As per the estimation project has completed the work of worth $40,000. There has been a major quality issue in the project and new estimated are needed. Now it is estimated that new costs will be 130,000 at the completion of the project. What is the To-Complete Performance Index?

Answer: It is very clear from the question that original budget is flawed and no more valid. New costs are estimated at project completion (EAC). Since BAC is flawed, we will not use this in our calculation. BAC is just presented to create confusion or you can say, to make the question more complete.

Now see the data presented in question:

BAC = $100000, EAC = $130000, AC = $80000, EV = $40000

Since the BAC is no more valid and EAC is in place now

TCPI = BAC – EV / EAC – AC

= (100000-40000)/(130000-80000) = 60000/50000 = 1.2

TCPI > 1, so it is not good for project.

 Note: Please note that “Work Remaining” is always BAC-EV doesn’t matter what the scenario is. Because work remaining is always measured from Original Budget and Earned value (Check other parts of “Mastering Earned Value Calculations”)